The West Asia war has begun to cause fiscal prressure, by raising questions over tax revenue buoyancy, but the government will maintain its capital expenditure at the budgeted level in FY27, Expenditure Secretary V. Vualnam said on Friday.
Responding to a question on whether India’s Goldilocks phase was over and the country was entering a period of cautious resilience, Vualnam said, “Yes, the situation has indeed changed. For instance, buoyancy on our gross tax receipts in the coming months is a big question…. probably the quality of expenditure is what we will be fully focused on.” He was speaking at the ICPP Growth Conference organised by Ashoka University.
In the budget, the Centre has factored in a modest tax buoyancy of 0.8, but now there is a big question if even that could be maintained.
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Infrastructure Priority
“The fiscal stress is indeed very much a reality, but at the same time… the capex would really be a priority item which we would like to preserve and ensure that it continues at the budgeted level,” he said. The Centre has set a capex target of Rs 12.2 lakh crore in FY27 compared with around Rs 10.95 lakh crore revised estimate for FY6. He added that highways, railways, shipping, ports and urban development would remain the priority sectors for FY27 capital spending.
“The next few months, the next quarter and the coming year are indeed very difficult to envisage, lots of possible stress points,” Vualnam said, noting the uncertain global environment.
Revenue Leakage
The government was facing pressure on both the expenditure and revenue sides. On the expenditure front, rising subsidy burdens linked to automobile fuel, cooking gas and fertiliser imports were a concern. On the revenue side, excise duty cuts on petrol and diesel had affected receipts, while future tax buoyancy had become uncertain. If the excise duty cut of Rs 10/litre for petrol and diesel continues for the whole year, the revenue loss is estimated to be Rs 1.7 lakh crore.
Vualnam noted India imports around 60% of its LPG requirements, and nearly 90 per cent of those supplies pass through the now-closed Strait of Hormuz, making the situation particularly challenging.
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While market forces of demand and supply should play a greater role in pricing, the government was continuing discussions on fuel price adjustments and under-recoveries faced by oil marketing companies. Based on the fresh assessments, the government on Friday raised the price of a 19-kg commercial LPG cylinder by a steep Rs 993 while it decided against further raising aviation turbine fuel prices (ATF) now.
In the coming days, the government may raise petrol, diesel and domestic cooking gas prices to keep the subsidy burden manageable and contain consumption, given the supply constraints, analysts said.
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